- Email: [email protected]
How American manufacturers are facing the global marketplace
How American Manufacturers Are Facing the Global Marketplace Kenneth Chilton
T
he past 15 years have been a time of great upheaval for American manufacturers. Sophisticated competitors have surfaced from widely distributed parts of the globe. International competition presents both opportunities and threats. As world markets grow, so does the potential customer base for American products, as well as the number and quality of competitors. In response to this, American producers have been forced to reevaluate their strategies and structures in fundamental ways. In a talk to the World Affairs Council of St. Louis on September 26, 1991, Charles Knight, chairman and CEO of Emerson Electric, succinctly described the effect of the new global marketplace on American manufacturing, saying, “Globalization of our markets and competitors is the single most difficult problem ever faced by Emerson Electric.” This statement comes from a business leader whose nearly $9 billion corporation generates 40 percent of its revenues from foreign sales and in 1994 posted its 36th consecutive year of improved earnings and earnings per share. Knight’s view of the environment facing U.S. producers is widely shared by the executives interviewed in a survey by the Center for the Study of American Business (CSAB) entitled “The Dynamic American Firm Project.”
10
In late spring 1993,the CSAB embarked on this two-year research project to examine the changes in strategies and structures taking place in U.S. manufacturing in response to changes in the competitive environment. The CSAB distributed a survey to 132 manufacturing executives who regularly receive its publications. More than one-third (48) responded. They tended to be from larger corporations: half of the firms had more than $1 billion in annual sales and more than 5,000 employees, and about one-quarter had sales below $100 million and fewer than 1,000 employees. The sample is also rather active in foreign markets: foreign sales represented between 5 and 15 percent of revenues for a third of the firms and between 15 and 30 percent for onefifth of them. One-quarter of the firms responding had foreign sales of 30 percent or more. GLOBAL COMPETITION DRIVES DRAMATIC CHANGE
0
verwhelmingly, the executives who responded to the CSAB survey felt that competitive pressures have indeed increased dramatically in the past ten years. As shown in Figure 1, three-quarters of them strongly agreed that their firms face “much stiffer competition today than just ten years ago.” Participants also believe that the challenge is global. More than 70 percent strongly agreed that their company is in direct competition with U.S. and foreign firms, not just domestic competitors. In-depth interviews with high-level manufacturing managers complemented the simple survey responses, providing richer detail. Although none of the 12 executives interviewed were included in the survey process, their views clearly mirror
Business
Horizons
/July-August
1995
those of the survey respondents. A retired senior vice-president from a large ($9 billion) chemical firm, when asked what were the driving forces behind the organizational changes that have been taking: place in American manufacturing, said: If I wanted to make a general observation, I would just say “Toyotas.” I don’t think it really came home to most of‘ the United States’ companies until 1081-1982 that, indeed, we were in a global war and we were losing. If we m’ere going to compete effectively, we were going to have to do something differently. Charles Knight sounded a similar theme in his 1991 talk to the World Affairs Council. The CEO ,
Indirect Foreign Competition Smaller firms’ experiences are different, of course, but not totally. Analysis of the companies sur\reyecl found that the proportion of revenues
Figure 1 Competition Heating Up
Somewhat Agree Suruey Statement: “My firm faces much stiffer competition today than it did just ten years ago.”
Neither Agree nor Disagree
Somewhat
Disagree
/ 0%
20%
I
40%
/ 60%
I
/
I
80%
1OO?/u
coming from foreign sales was a function of firm size: larger firms have higher shares of foreign sales. Nonetheless, smaller (but not necessarily “small”) businesses can experience formidable “indirect competition” with foreign firms, if not always direct competition. For example, the chairman of a manufacturer of components for commercial and industrial capital equipment, which garners $100 million in annual sales, said: We see a lot of the equipment for which we were supplying components for manufacture in this country coming in from other countries. Once we could sell our product to be used in equipment made in the U.S. and shipped throughout the world. Now we see end-use equipment coming in from other locations that doesn’t have our product on it. It is an oversimplification to say that all manufacturers have become global players. Rut it is safe to say that nearly all have been, or are being, affected by the increasingly global marketplace.
“One Size Does Not Fit All” Responses to global threats and opportunities are hardly uniform-ven within a single corporation. The geographic and socioeconomic factors of the markets being served, types of customers (consumers or industrial or commercial users), and the nature of the competition (the firm’s market share, local or global competitors) affect strategic and structural responses to these challenges. An executive vice president of a large chemical and metals company ($2.5 billion sales and 15.000 employees) also pointed out that parts of large firms are global for differing reasons. The
11
“strategy” of being global is dictated by the customers and the particular industry in which the division competes. This executive indicated that out of the corporation’s portfolio of 12 businesses, probably four would be considered “truly global,” or at least multinational businesses. In two of these, the division is internationally driven by following its global customers. In another, the business is global because its competitors are. The fourth business is global because the com-
Figure 2 Flexible Strategies for Foreign
Exports Primary Method
Sales: Responses
pany is pursuing a strategy of leveraging its assets on a worldwide basis. This division has a dominant position in North America and a significant market share in Southern Europe, South Africa, Australia, and Latin America. The executive concluded, “In all these instances, we’re evolving from having had an international division that performed as another division, e.g., an off-shore division. I look for these three or four major businesses to run themselves on a worldwide basis.”
from Manufacturing
vf Foreign Sales
Executives
Direct Investments
..I::
10
StroLgly Agree
N&her
I
Somewhat Agree
5
5
0
0
Strdngly Disagree Somewhat Disagree
stro&gy Agree No Response
12
Somewhat Disagree
No Response
Ndther
I Somewhat Agree
Somewhat Disagree
Disagree No Response
Best to Acquire Existing Facility
Best to Build a Neul (Gveerzfield) Plant
Somewhat Agree
Needed
45
45
40
40
35
35
30
30
25 4 20 g 3 15
25 2 20 2 3 15
10
10
5
5
0
0
Somewhat Agree
Somewh3t Disagree
No Response
U.S. Manufacturing on the Rebound American manufacturers are optimistic that they are improving their ability to compete. Fully 90 percent of the manufacturing executives responding to the CSAB survey agreed that their firms are more competitive today than they were five years ago. Typical definitions of “more competitive” inch ded increased sales per employee, increased market share, higher quality, greater customer service, lower costs, and reduced manufacturing lead times. .\lmost all (9j percent) of the manufacturing executives agreed that product quality has impro\,ed ‘*significantly” during the past five years. Also the importance of quality as a competitive factc.r is seen to be increasing. More than threequarters of the respondents agreed that “to beat the c,ompetition, our company must improve product quality more in the next five years than we did in the past five years.” The executives surveyed also believe that the pace of innovation has quickened at their firms. Three-quarters agreed that cycle time for new products has decreased significantly in the past five >fears. As with quality, manufacturers do not see their mission as fulfilled. Fully 85 percent agreed that cycle times must be reduced more in the next five years than was accomplished in the past five l’ears.
STRATEGICRESPONSESTO GLOBAL COMPETITION
W
hat are some specific ways in which these firms are responding to this perceived global challenge? How are strategies and structures being altered to improve competitiveness? The GAB survey primarily examined two sets of strategic issues: establishing or 1. How are manufacturers expanding their global presence? ‘. How are relationships with customers and suppliers changing?
than half of the firms agreed on the need for direct investments in key markets. But there was no clear consensus on whether new “greenfield” plants are preferable to purchasing existing plants. Entering or expanding market presence by acquisition was more popular, with nearly half supporting this strategy. The explanation for this lack of consensus is rather obvious: U.S. manufacturing executives are not wed to any one method of competing in foreign markets. Instead, they tend to fit the strategy to the particular competitive circumstances. Recall that the executive vice president of the $2.5 billion chemical and metals company maintained there were different reasons for the firm’s global businesses entering foreign markets. Three primary motivations are: (1) following global customers, (2) responding to global competitors, and (3) leveraging assets. Similarly, each firm assesses the best way to compete in key foreign markets within the most efficient time frame, subject to its own financial and managerial resource constraints. Joint Ventures and Alliances. Joint ventures and alliances are viewed as relatively new strategies for increasing global competitiveness. The manufacturing executives responding to the survey were somewhat drawn to these developing organizational forms, with 70 percent agreeing that they are attractive (see Figure 3). To a large extent, however, these positive feelings are not based on first-hand experiences with such inter-firm relationships. About one-
Figure3 Joint VenturesPopularButLargelyUntried
Strategies for Penetrating or Expanding Foreign Markets Figure 2 shows the responses to a series of quesrions in the manufacturing survey. One asked executives how their firms compete in foreign markets and what experiences they have had with joint ventures and licensing. Forty-two percent agreed with the statement, “My firm competec in foreign markets primarily through cxports,” but 48 percent disagreed. Though it is plauGble that smaller firms primarily export and larger firms make direct investments in foreign markets, statistical analysis of the survey respon”s did not confirm this hypothesis. More
Somewhat Disagree
rl [[I
Strongly Disagree
n
0%
10%
Positive
20%
Experiences
30%
with JVs
40%
50%
13
third of the executives indicated that their company actually had positive experiences with alliances or joint ventures with foreign partners. More than half did not respond or answered “neither” (again, see Figure 3). Interestingly, many of the respondents plan to increase the use of alliances and joint ventures with foreign firms significantly in the next five years. More than half the executives indicated that their firms hoped to increase their participation in these types of ventures, with most of the others being fence-sitters rather than opposing the concept. The executives interviewed reflected a pragmatic view toward alliances and joint ventures. The executive vice president of the large chemical and metals company indicated that his firm’s global businesses were at first export-oriented. More recently, though, the corporation has become much more interested in forming joint ventures and alliances. The explanation offered was as follows: Some companies don’t want to give away any of their equity; [they] want to be very much their own company offshore. In our particular case, we’ve gone the joint venture route because it’s allowed us to establish an immediate position in the culture, particularly in Japan and Latin America. Size or critical mass may be another reason why we have chosen the joint venture route; we just aren’t as big as [some of our competitors] which tend to set up wholly-owned foreign operations. The executive vice president of international operations at the Fortune 100 consumer and industrial products company reinforced the suggestion that “critical mass” plays a role in the strategy deployed to enter and expand in foreign markets. He responded: In terms of equity partnerships, we have very few. We have a few around the world in countries where, at the time, we could not wholly own an operation. We find that in an equity joint venture, we put in more than 50 percent of the effort anyway. We feel that we prefer not to partner in that way unless we have to. The CEO of U.S. operations of a large foreign pharmaceutical and chemical firm ($3 billion in U.S. sales, with 11,500 U.S. employees) indicated that he did not see such ventures as particularly new. He remarked, “In the late 1960~. \vhen I joined our agricultural di\rision, \ve w~3-e ve1~
small and had already started doing that sort of thing. It hasn’t struck me as something unique to this decade, but I can see it as being more important, more accepted.” Clearly, joint ventures and alliances have something to offer companies looking for ways to become more successful global competitors. Regardless of their recent popularity, however, these innovations aren’t for everyone. In some cases they are even passe. Partnering
with Customers
and Suppliers
The manufacturing executives surveyed concurred on how customer and supplier relationships are changing. Overwhelmingly, the respondents agreed that they are working more closely with suppliers and customers today: 87 percent are working more closely with suppliers; 94 percent are working more closely with customers. Furthermore, the vast majority intend to become even closer to both groups. When asked to provide operational definitions for customer and supplier “closeness,” synonyms such as *‘alliances” and “partnering” were often used. Closeness to customers also means “finding out what the customer wants,” “personal contact with each customer beyond the immediate purchasing agent,” and “mutual planning, design input, and electronic data exchange.” Of course, closeness to suppliers is simply the mirror image of closeness to customers; it means involving the supplier in the firm’s manufacturing and product development decisions. A 1993 study of mid-sized manufacturers by the accounting and management consulting firm Grant Thornton describes this process of reorganizing to meet the twin objectives of becoming closer to customers and suppliers as “reengineering the supply chain.” This, in essence. “redefines relationships between companies, usually customers and suppliers along the vast supply chain, to ensure consistency, accuracy, and expediency from customer demand to delivery.” In particular, the Grant Thornton survey found that “many mid-sized manufacturers that serve several large companies are finding it helpful to establish strategic business units within their companies, dedeating entire staffs and technological resources exclusively to one major customer.“ The executive vice president of the large chemical and metals firm spoke about the link between getting close to the customer and the structural changes needed to support that strategy. A functionally oriented organization with product managers that matrixed across functions proved to be too unresponsive to customer needs. Decision making was dri\,en by company culture rather than customer needs. He esplained:
We recognized the [different] natures of the customers and that there were a different set of factors required to serve them. To serve them well required a much different culture. We thought we were achieving these same objectives with business managers working across the matrix. But we reached the conclusion that we weren’t really able to address it effectively without customizing the organization to fit the customer’s culture. The future will bring even more significant changes to the relationship between a manufacturer and its customers and suppliers. According to the Grant Thornton survey, “Eventually, customers and suppliers will operate without physical and logistical barriers that distinguish one from the other. The ultimate customer/supplier partnership . . strives for optimum speed, quality, flexibility, service, and cost savings.” Some of these dramatic changes are taking place now. The authors of the survey argue that the rapid growth in “client-server technology” [interactive computer networks] already signifies the emergence of this type of organization. Another aspect of this development is that manufacturers are reducing the number of suppliers. As Neil Templin and Jeff Cole of the Wall Street./ournal observe, “The common practice of pitting suppliers to bid against each other is being abandoned in favor of longer-term commitments to single suppliers. Manufacturers are also bringing suppliers on board much earlier in the design process, at times even inviting them to help dream up a new product” (1994). It IS not sufficient, however, merely to develop new strategies to engage global competitors. The structures-the organization of human resources, the deployment of assets, and the decision-making apparatus-must support those strategies and “fit” the environments (economic and political) in which the firm has chosen to compete. REDESIGNING STRUCXJRES
Figure 4 Magnitude of Organizational Change
Not Significant
ORGANIZATIONAL
T
he CSAB survey of American manufacturing executives next posed the following, very general question: “Taken as a whole. how significant are the organizational changes that have taken place at your firm over the pa>,t five years?” To be sure, this is a rather short time frame for organizational change, but the churning that is taking place within U.S. manufacturing firms is evident from the responses given. Fully 96 percent of the executives view the past fi\e years as a time of important structural
How American
changes at their firms (see Figure 41. The chairman of the executive committee of the large US. chemical firm agreed that structures have changed. He pinpointed what he believed was the dominant feature of that change, responding, “I think we’ve seen substantial changes in structure. Phalanxes of middle management have been removed. A lot of people were eliminated by restructuring the operations and increasing dollar sales per person.” The surveyed executives also responded to a question that asked them to compare the degree of expected organizational changes required in the next five years to the changes during the past five years. About one in five expected future organizational change to be “much more significant”; nearly two in five answered “more significant.” The problem with this question is that if an executive responded previously that changes during the past five years were extremely significant, and that he expected more of the same, the response could be “about the same.” What might appear to be a tepid response could actually reflect expectation of a tumultuous future. A separate analysis was conducted to examine the two organizational change questions together. More than one-quarter of the sample answered that the past five years had produced extremely significant changes in their firms and that the future five years would be “about the same.” In total, nearly 85 percent of the respondents expect a great deal of organizational change to occur during the coming five years.
ManufxtUrerS
are Facing the Global
Marketplace
Somewhat Significant
Extrdmely Significant 0
10
20 30 40 Percent of Respondents
50
15
Decentralizing Decision Making What are some of the features of organizational and structural change taking place in American manufacturing? In particular, how is the locus of decision making being altered? The executives generally supported the proposition that decision making is more decentralized today. Responding to the statement, “Compared to five years ago, my company has significantly decentralized decision making,” 40 percent agreed somewhat, another eight percent strongly agreed, but one-sixth disagreed somewhat. Fence-sitters made up a third of the respondents. Other survey questions strengthen the case for the proposition that decision making is becoming more decentralized. One provocative survey statement read, “‘Empowerment’ is just a buzzword. Except for minor decisions, management should call the shots.” This question received 85 percent disagreement from the manufacturing executives (see Figure 5). The chairman of the executive committee at the large chemical firm had interesting insights on empowerment. He acknowledged: I think in America we still have a division in our minds between the factory floor and the “thinkers” in the offices. I firmly believe that, over time, as socalled empowerment becomes the way of life, we will see dramatic changes in, or elimination of, work rules as now imposed by unions and we will move to
Figure 5 Is Empowerment Just a Buzzword? Somewhat Agree
Suruey Statenwnt: “‘Empowerment’ is just a buzzword. Except for minor decisions, management should call the shots.”
16
the all-salaried work force. It’s wrong to say empowerment is a lot of malarkey; it does work. Flattening the Organization Organizational flattening is another significant structural change taking place at U.S. manufacturing firms. Manufacturers are removing layers from their hierarchies. Although the objectives of these changes are often presumed merely to be costcutting, an alternative explanation is that removing layers facilitates decentralized decision making or empowerment. The traditional explanation can be supported by the Wyatt Company’s 1993 study, Best Practices in Corporate Restructuring. In that study, 90 percent of companies surveyed said cost reduction was a goal of restructuring and only 57 percent said that improving decision making was a key goal. However, the present study provides evidence that decentralization of decision making may be the primary goal of restructuring. The high-level manufacturing managers interviewed in the present study were asked whether delayering was a significant event in their organizations during the past five years. The executives who agreed that their firm had “greatly reduced the number of layers in its organizational hierarchy” far outnumbered the ones who disagreed. But what are the objectives behind these transformations? Two additional questions were posed to explore this issue. Manufacturing executives were quite divided in their responses to the statement that layers were removed primarily to cut costs-41 percent agreed and 27 percent disagreed (see Figure 6). Though the word “primarily” was italicized to draw attention to it in the statement, the response to the companion question makes it clear that this word was not particularly emphasized in the minds of the survey takers. When asked whether delayering was done primarily to push decision making down the hierarchy, 59 percent agreed while only six percent disagreed. If the two explanations were viewed as mutually exclusive, one or the other of the two statements should have had less support. As it stands, survey results show stronger support for the proposition that removing layers is a structural change that facilitates decentralized decision making. Fewer executives took the view that delayering is purely a cost-cutting mechanism. Motivations for Decentralization and Empowerment
I
Interview responses on the delayering issue were similarly mixed, with the weight of the comments on the side of empowerment explanations. Inter-
Figure 6 Flatter Hierarchies: Cost Cutting or Empowerment?
Strongly Agree
Somewhat Agree
Neither Agree nor Disagree
sunreystatemnts: I
I
I
I
tiyers have been removed from our management structure primarily as a cost-cutting measure.
Somewhat Disagree
I
Strongly Disagree
0%
5%
10%
lj%
20%
25%
I’
30%
35%
40%
estingly, other possible factors surfaced from the interviews. The CEO of a mid-sized ($460 million annual salex) industrial products and services conglomerate was strongly in the “decentralized decision making” camp. He commented:
more decentralized. We have fewer layers of management than before. I think the operating units are the most important; the rest of the company creates the formal and psychological structure where the operating companies must thrive.
When I came to [the firm] in 1983, in some cases there were 12 layers of management; in most cases, probably about eight or nine. We forced each of the operating companies to get rid of all of l.hese intermediate layers; sometimes one boss just managed another boss. Spans of control are now anywhere from six to a dozen people. I think flattening the organizations and decentralizing has made a tremendous difference in terms of our ability to respond to changes in market conditions. People down the line know that it is I heir job to do the responding.
The discussion of organizational change offered thus far has been in somewhat global, or macro, termsghanges in the locus of decision making or realignments to meet customer needs. At some point, however, the organizational structure must be considered in human terms.
The U.S. CEO of the large foreign pharmaceutical and chemical company also saw decentralization and flatter structures as going hand-inham:. Comparing his company’s current organization to its structure in the 1950s or 1960s, he said: Basic economic decisions are still centralized, but the way it actually operates is
How .bnerican
Manufacturers
are Facing the Global
Marketplace
THE HUMAN
SIDE OF CHANGE
A
11 firms are made up of individuals whose actions must be coordinated to further company objectives. Several questions on the CSAB survey and in the interviews were directed at changes in the use of human resources. Survey questions were designed particularly to determine whether employees are becoming relatively more valuable in gaining a competitive advantage. If executives believe that human capital is increasing in importance, what actions are companies taking to better utilize these assets? Admittedly, executives who believe their firms have always valued human resources highly might respond in a noncommittal, or even nega-
17
these skills are readily transferable to other jobs” (see Figure 7). If human resources are seen as being even more Somewhat important to a firm’s success Disagree Neither Agree than in the past, and if (P/n\ Neither Agree training is also critical, then Nor Disagree it seems logical that compa(2%) nies would want to hold on to valuable personnel. To test this assumption, the executives were asked their level of agreement with the statement, “Compared to five years ago, it is more critical to reduce turnover of experienced personnel.” Such a statement is somewhat biased toward a neuHuman resources are relatively more valua ble tral or negative response. If in gaining a competitive advantage. they have viewed turnover Companies must invest in work training to be a critical problem in even if skills taught are readily transferable. the past, executives are less likely to agree with the statement that it is now . . more critical. Nearly three-quarters of the respontive, way to a statement about them becoming dents agreed that it has become increasingly more valuable. However, the survey responses important to reduce employee turnover; less than were very positive. There was overwhelming 10 percent disagreed. support (88 percent agreement) that the people In short, the organizational changes occurring who make up an organization ultimately provide in American manufacturing have a curious dithe firm’s competitive edge (see Figure 7). chotomous nature. On the one hand, firms are Not all of the executives interviewed agreed downsizing and eliminating middle management with the proposition that human resources are jobs. At the same time, the human component of gaining increased attention. The executive vice these firms is receiving increased attention. president of international operations at the very large consumer and industrial products company hat types of changes in strategies and primarily objected to the premise that there is a structures might we anticipate in the significant change in focus at his firm. He offered next five years? Should we exDect an the following viewpoint: evolution or a revolution in manufacturing organizations? The Dynamic American Firm research Even when I joined the company 37 project uncovered a great deal of information years ago, they said, “People are our about developments during the past five to ten most important resource.” We have alyears in organizational strategies and structures at ways had that attitude and have encourU.S. manufacturing firms. The driving force beaged people to be innovative. I think hind the pivotal shift toward decentralized decithat perhaps the change has been that sion making (empowerment) and customer satiswe realize the importance of retraining faction clearly has been increased competitionand keeping skills current. Being able to global competition, that is. manage change and deal with change is Furthermore, improved telecommunications more important in the human resource and computer technology have expanded the set area than it was 20 years ago. of possible organizational strategies and structures. In many instances, economies of scale have The insight lodged in these few words was been reduced because of more flexible producreinforced by the survey. Nearly all respondents tion technologies, thereby rendering manufacturagreed that “human resources will require coning facilities more mobile and better suited to tinual upgrading of their skills to keep pace with make products for varied consumer tastes. Ameriforeign competitors.” Likewise, there was no can producers have responded by tailoring their disagreement with the statement, “Companies strategies for meeting global competition to the must make investments in worker training even if
Figure 7 Human Resources Key to Competitiveness
W
18
1
Business
Horizons
/July-August
19%
political, economic, and cultural realities of specific markets. Another important finding from this research is that manufacturing executives have become more aware of the importance of human resources to the success of the firm. They reject the notion that “empowerment” is just a buzzword. Tholugh they have massively reduced the ranks of their middle managers, they wish to reduce employee turnover and make investments in improxing the skills of the survivors. By and large, the executives interviewed for the project see evolutionary-not revolutionarychanges in future strategies and structures. The chairman of the executive committee at the large U.S. chemical firm said of his own company: For the future, I don’t perceive an organizational scheme that I think will work much better than what we have-at least not in the next five to ten years. I think we have a reasonable balance between centralization and decentralization, between organizing and letting our businesses that compete in given fields compete without being burdened with the overhang of others that don’t compete in those fields. But there still has to be a central tie together to it and a semblance of a corporation. The U.S. CEO of the foreign pharmaceutical and chemical firm likewise foresees incremental change. His crystal ball included the following: Operations will be leaner, no doubt about it. There will be greater focus on like things, and we will unscramble unlike things, as the general rule. Managers will need to be more flexible. They can be very focused, but at :he same time must be able to be used in different settings if new opportunities develop. We are entering an era of “industrial pluralism.” The manager of the future has to be sensitive to working in groups and yet motivating the individual, _md being very focused by product and ,culture and yet being very international. I think that the structures themselves will have to be very simple, very direct. I l:hink the subtlety will be in the educa-ion of the individuals rather than struc‘:ures. The CEO of the international food processing joint venture emphasized the need to be able to adapt rapidly. In his mind, financial controls must be maintained to place a constraint on the activities of any organization. He suggested: How American
i%mufacturers
are Facing the C?bbal Marketplace
One needs a less bureaucratic management structure and yet one needs some very substantial control as one spreads out around the world. I think one of the challenges for organizations is to set in place the appropriate financial controls and yet, at the same time, provide a sufficient strategic vision so that operating managers can respond to this rapidly changing world. Today you must establish a more adaptive kind of organization-a project management type-that can keep changing itself. American producers are building on their experiences with teams to analyze internal processes, identify opportunities for streamlining operations to deliver more value to the customer, and implement the needed (but not necessarily welcome) changes. A common result is that these companies are reorganizing along customer lines; as customers change, so will the organization. American producers are optimistic that they are improving their abilities to compete. Ninety percent of the executives surveyed in this research believe they are doing a better job of meeting, or beating, the competition than they were just five years ago. Nearly all believe they have improved quality significantly during this time. Three-quarters of the executives believe they have greatly decreased product cycle times. The only thing certain about the future for American manufacturers, however, is that more change is inevitable. In the words of one CEO, “It’s an intense world. The process [of competing] requires constant attention.” 0 References Best Practices in Corporate Restructuring Wyatt Company, 1993).
(Chicago: The
Harvey S. James, Jr. and Murray Weidenbaum, When Businesses Cross International Borders: Strategic Alliances and 7beir Alternatives (Westport, CT: Praeger Publishers, 1993). Neil Templin and Jeff Cole, “Working Together: Manufacturers Use Suppliers to Help Them Develop New Products,” Wall Street Journal, December 19, 1994, p, Al. Grant Thornton Survey of American Annual Report (New York, 1993).
Manufacturers
Kenneth W. Chilton is the director of the Center for the Study of American Business at Washington University in St. Louis, Missouri.
19
T
he past 15 years have been a time of great upheaval for American manufacturers. Sophisticated competitors have surfaced from widely distributed parts of the globe. International competition presents both opportunities and threats. As world markets grow, so does the potential customer base for American products, as well as the number and quality of competitors. In response to this, American producers have been forced to reevaluate their strategies and structures in fundamental ways. In a talk to the World Affairs Council of St. Louis on September 26, 1991, Charles Knight, chairman and CEO of Emerson Electric, succinctly described the effect of the new global marketplace on American manufacturing, saying, “Globalization of our markets and competitors is the single most difficult problem ever faced by Emerson Electric.” This statement comes from a business leader whose nearly $9 billion corporation generates 40 percent of its revenues from foreign sales and in 1994 posted its 36th consecutive year of improved earnings and earnings per share. Knight’s view of the environment facing U.S. producers is widely shared by the executives interviewed in a survey by the Center for the Study of American Business (CSAB) entitled “The Dynamic American Firm Project.”
10
In late spring 1993,the CSAB embarked on this two-year research project to examine the changes in strategies and structures taking place in U.S. manufacturing in response to changes in the competitive environment. The CSAB distributed a survey to 132 manufacturing executives who regularly receive its publications. More than one-third (48) responded. They tended to be from larger corporations: half of the firms had more than $1 billion in annual sales and more than 5,000 employees, and about one-quarter had sales below $100 million and fewer than 1,000 employees. The sample is also rather active in foreign markets: foreign sales represented between 5 and 15 percent of revenues for a third of the firms and between 15 and 30 percent for onefifth of them. One-quarter of the firms responding had foreign sales of 30 percent or more. GLOBAL COMPETITION DRIVES DRAMATIC CHANGE
0
verwhelmingly, the executives who responded to the CSAB survey felt that competitive pressures have indeed increased dramatically in the past ten years. As shown in Figure 1, three-quarters of them strongly agreed that their firms face “much stiffer competition today than just ten years ago.” Participants also believe that the challenge is global. More than 70 percent strongly agreed that their company is in direct competition with U.S. and foreign firms, not just domestic competitors. In-depth interviews with high-level manufacturing managers complemented the simple survey responses, providing richer detail. Although none of the 12 executives interviewed were included in the survey process, their views clearly mirror
Business
Horizons
/July-August
1995
those of the survey respondents. A retired senior vice-president from a large ($9 billion) chemical firm, when asked what were the driving forces behind the organizational changes that have been taking: place in American manufacturing, said: If I wanted to make a general observation, I would just say “Toyotas.” I don’t think it really came home to most of‘ the United States’ companies until 1081-1982 that, indeed, we were in a global war and we were losing. If we m’ere going to compete effectively, we were going to have to do something differently. Charles Knight sounded a similar theme in his 1991 talk to the World Affairs Council. The CEO ,
Indirect Foreign Competition Smaller firms’ experiences are different, of course, but not totally. Analysis of the companies sur\reyecl found that the proportion of revenues
Figure 1 Competition Heating Up
Somewhat Agree Suruey Statement: “My firm faces much stiffer competition today than it did just ten years ago.”
Neither Agree nor Disagree
Somewhat
Disagree
/ 0%
20%
I
40%
/ 60%
I
/
I
80%
1OO?/u
coming from foreign sales was a function of firm size: larger firms have higher shares of foreign sales. Nonetheless, smaller (but not necessarily “small”) businesses can experience formidable “indirect competition” with foreign firms, if not always direct competition. For example, the chairman of a manufacturer of components for commercial and industrial capital equipment, which garners $100 million in annual sales, said: We see a lot of the equipment for which we were supplying components for manufacture in this country coming in from other countries. Once we could sell our product to be used in equipment made in the U.S. and shipped throughout the world. Now we see end-use equipment coming in from other locations that doesn’t have our product on it. It is an oversimplification to say that all manufacturers have become global players. Rut it is safe to say that nearly all have been, or are being, affected by the increasingly global marketplace.
“One Size Does Not Fit All” Responses to global threats and opportunities are hardly uniform-ven within a single corporation. The geographic and socioeconomic factors of the markets being served, types of customers (consumers or industrial or commercial users), and the nature of the competition (the firm’s market share, local or global competitors) affect strategic and structural responses to these challenges. An executive vice president of a large chemical and metals company ($2.5 billion sales and 15.000 employees) also pointed out that parts of large firms are global for differing reasons. The
11
“strategy” of being global is dictated by the customers and the particular industry in which the division competes. This executive indicated that out of the corporation’s portfolio of 12 businesses, probably four would be considered “truly global,” or at least multinational businesses. In two of these, the division is internationally driven by following its global customers. In another, the business is global because its competitors are. The fourth business is global because the com-
Figure 2 Flexible Strategies for Foreign
Exports Primary Method
Sales: Responses
pany is pursuing a strategy of leveraging its assets on a worldwide basis. This division has a dominant position in North America and a significant market share in Southern Europe, South Africa, Australia, and Latin America. The executive concluded, “In all these instances, we’re evolving from having had an international division that performed as another division, e.g., an off-shore division. I look for these three or four major businesses to run themselves on a worldwide basis.”
from Manufacturing
vf Foreign Sales
Executives
Direct Investments
..I::
10
StroLgly Agree
N&her
I
Somewhat Agree
5
5
0
0
Strdngly Disagree Somewhat Disagree
stro&gy Agree No Response
12
Somewhat Disagree
No Response
Ndther
I Somewhat Agree
Somewhat Disagree
Disagree No Response
Best to Acquire Existing Facility
Best to Build a Neul (Gveerzfield) Plant
Somewhat Agree
Needed
45
45
40
40
35
35
30
30
25 4 20 g 3 15
25 2 20 2 3 15
10
10
5
5
0
0
Somewhat Agree
Somewh3t Disagree
No Response
U.S. Manufacturing on the Rebound American manufacturers are optimistic that they are improving their ability to compete. Fully 90 percent of the manufacturing executives responding to the CSAB survey agreed that their firms are more competitive today than they were five years ago. Typical definitions of “more competitive” inch ded increased sales per employee, increased market share, higher quality, greater customer service, lower costs, and reduced manufacturing lead times. .\lmost all (9j percent) of the manufacturing executives agreed that product quality has impro\,ed ‘*significantly” during the past five years. Also the importance of quality as a competitive factc.r is seen to be increasing. More than threequarters of the respondents agreed that “to beat the c,ompetition, our company must improve product quality more in the next five years than we did in the past five years.” The executives surveyed also believe that the pace of innovation has quickened at their firms. Three-quarters agreed that cycle time for new products has decreased significantly in the past five >fears. As with quality, manufacturers do not see their mission as fulfilled. Fully 85 percent agreed that cycle times must be reduced more in the next five years than was accomplished in the past five l’ears.
STRATEGICRESPONSESTO GLOBAL COMPETITION
W
hat are some specific ways in which these firms are responding to this perceived global challenge? How are strategies and structures being altered to improve competitiveness? The GAB survey primarily examined two sets of strategic issues: establishing or 1. How are manufacturers expanding their global presence? ‘. How are relationships with customers and suppliers changing?
than half of the firms agreed on the need for direct investments in key markets. But there was no clear consensus on whether new “greenfield” plants are preferable to purchasing existing plants. Entering or expanding market presence by acquisition was more popular, with nearly half supporting this strategy. The explanation for this lack of consensus is rather obvious: U.S. manufacturing executives are not wed to any one method of competing in foreign markets. Instead, they tend to fit the strategy to the particular competitive circumstances. Recall that the executive vice president of the $2.5 billion chemical and metals company maintained there were different reasons for the firm’s global businesses entering foreign markets. Three primary motivations are: (1) following global customers, (2) responding to global competitors, and (3) leveraging assets. Similarly, each firm assesses the best way to compete in key foreign markets within the most efficient time frame, subject to its own financial and managerial resource constraints. Joint Ventures and Alliances. Joint ventures and alliances are viewed as relatively new strategies for increasing global competitiveness. The manufacturing executives responding to the survey were somewhat drawn to these developing organizational forms, with 70 percent agreeing that they are attractive (see Figure 3). To a large extent, however, these positive feelings are not based on first-hand experiences with such inter-firm relationships. About one-
Figure3 Joint VenturesPopularButLargelyUntried
Strategies for Penetrating or Expanding Foreign Markets Figure 2 shows the responses to a series of quesrions in the manufacturing survey. One asked executives how their firms compete in foreign markets and what experiences they have had with joint ventures and licensing. Forty-two percent agreed with the statement, “My firm competec in foreign markets primarily through cxports,” but 48 percent disagreed. Though it is plauGble that smaller firms primarily export and larger firms make direct investments in foreign markets, statistical analysis of the survey respon”s did not confirm this hypothesis. More
Somewhat Disagree
rl [[I
Strongly Disagree
n
0%
10%
Positive
20%
Experiences
30%
with JVs
40%
50%
13
third of the executives indicated that their company actually had positive experiences with alliances or joint ventures with foreign partners. More than half did not respond or answered “neither” (again, see Figure 3). Interestingly, many of the respondents plan to increase the use of alliances and joint ventures with foreign firms significantly in the next five years. More than half the executives indicated that their firms hoped to increase their participation in these types of ventures, with most of the others being fence-sitters rather than opposing the concept. The executives interviewed reflected a pragmatic view toward alliances and joint ventures. The executive vice president of the large chemical and metals company indicated that his firm’s global businesses were at first export-oriented. More recently, though, the corporation has become much more interested in forming joint ventures and alliances. The explanation offered was as follows: Some companies don’t want to give away any of their equity; [they] want to be very much their own company offshore. In our particular case, we’ve gone the joint venture route because it’s allowed us to establish an immediate position in the culture, particularly in Japan and Latin America. Size or critical mass may be another reason why we have chosen the joint venture route; we just aren’t as big as [some of our competitors] which tend to set up wholly-owned foreign operations. The executive vice president of international operations at the Fortune 100 consumer and industrial products company reinforced the suggestion that “critical mass” plays a role in the strategy deployed to enter and expand in foreign markets. He responded: In terms of equity partnerships, we have very few. We have a few around the world in countries where, at the time, we could not wholly own an operation. We find that in an equity joint venture, we put in more than 50 percent of the effort anyway. We feel that we prefer not to partner in that way unless we have to. The CEO of U.S. operations of a large foreign pharmaceutical and chemical firm ($3 billion in U.S. sales, with 11,500 U.S. employees) indicated that he did not see such ventures as particularly new. He remarked, “In the late 1960~. \vhen I joined our agricultural di\rision, \ve w~3-e ve1~
small and had already started doing that sort of thing. It hasn’t struck me as something unique to this decade, but I can see it as being more important, more accepted.” Clearly, joint ventures and alliances have something to offer companies looking for ways to become more successful global competitors. Regardless of their recent popularity, however, these innovations aren’t for everyone. In some cases they are even passe. Partnering
with Customers
and Suppliers
The manufacturing executives surveyed concurred on how customer and supplier relationships are changing. Overwhelmingly, the respondents agreed that they are working more closely with suppliers and customers today: 87 percent are working more closely with suppliers; 94 percent are working more closely with customers. Furthermore, the vast majority intend to become even closer to both groups. When asked to provide operational definitions for customer and supplier “closeness,” synonyms such as *‘alliances” and “partnering” were often used. Closeness to customers also means “finding out what the customer wants,” “personal contact with each customer beyond the immediate purchasing agent,” and “mutual planning, design input, and electronic data exchange.” Of course, closeness to suppliers is simply the mirror image of closeness to customers; it means involving the supplier in the firm’s manufacturing and product development decisions. A 1993 study of mid-sized manufacturers by the accounting and management consulting firm Grant Thornton describes this process of reorganizing to meet the twin objectives of becoming closer to customers and suppliers as “reengineering the supply chain.” This, in essence. “redefines relationships between companies, usually customers and suppliers along the vast supply chain, to ensure consistency, accuracy, and expediency from customer demand to delivery.” In particular, the Grant Thornton survey found that “many mid-sized manufacturers that serve several large companies are finding it helpful to establish strategic business units within their companies, dedeating entire staffs and technological resources exclusively to one major customer.“ The executive vice president of the large chemical and metals firm spoke about the link between getting close to the customer and the structural changes needed to support that strategy. A functionally oriented organization with product managers that matrixed across functions proved to be too unresponsive to customer needs. Decision making was dri\,en by company culture rather than customer needs. He esplained:
We recognized the [different] natures of the customers and that there were a different set of factors required to serve them. To serve them well required a much different culture. We thought we were achieving these same objectives with business managers working across the matrix. But we reached the conclusion that we weren’t really able to address it effectively without customizing the organization to fit the customer’s culture. The future will bring even more significant changes to the relationship between a manufacturer and its customers and suppliers. According to the Grant Thornton survey, “Eventually, customers and suppliers will operate without physical and logistical barriers that distinguish one from the other. The ultimate customer/supplier partnership . . strives for optimum speed, quality, flexibility, service, and cost savings.” Some of these dramatic changes are taking place now. The authors of the survey argue that the rapid growth in “client-server technology” [interactive computer networks] already signifies the emergence of this type of organization. Another aspect of this development is that manufacturers are reducing the number of suppliers. As Neil Templin and Jeff Cole of the Wall Street./ournal observe, “The common practice of pitting suppliers to bid against each other is being abandoned in favor of longer-term commitments to single suppliers. Manufacturers are also bringing suppliers on board much earlier in the design process, at times even inviting them to help dream up a new product” (1994). It IS not sufficient, however, merely to develop new strategies to engage global competitors. The structures-the organization of human resources, the deployment of assets, and the decision-making apparatus-must support those strategies and “fit” the environments (economic and political) in which the firm has chosen to compete. REDESIGNING STRUCXJRES
Figure 4 Magnitude of Organizational Change
Not Significant
ORGANIZATIONAL
T
he CSAB survey of American manufacturing executives next posed the following, very general question: “Taken as a whole. how significant are the organizational changes that have taken place at your firm over the pa>,t five years?” To be sure, this is a rather short time frame for organizational change, but the churning that is taking place within U.S. manufacturing firms is evident from the responses given. Fully 96 percent of the executives view the past fi\e years as a time of important structural
How American
changes at their firms (see Figure 41. The chairman of the executive committee of the large US. chemical firm agreed that structures have changed. He pinpointed what he believed was the dominant feature of that change, responding, “I think we’ve seen substantial changes in structure. Phalanxes of middle management have been removed. A lot of people were eliminated by restructuring the operations and increasing dollar sales per person.” The surveyed executives also responded to a question that asked them to compare the degree of expected organizational changes required in the next five years to the changes during the past five years. About one in five expected future organizational change to be “much more significant”; nearly two in five answered “more significant.” The problem with this question is that if an executive responded previously that changes during the past five years were extremely significant, and that he expected more of the same, the response could be “about the same.” What might appear to be a tepid response could actually reflect expectation of a tumultuous future. A separate analysis was conducted to examine the two organizational change questions together. More than one-quarter of the sample answered that the past five years had produced extremely significant changes in their firms and that the future five years would be “about the same.” In total, nearly 85 percent of the respondents expect a great deal of organizational change to occur during the coming five years.
ManufxtUrerS
are Facing the Global
Marketplace
Somewhat Significant
Extrdmely Significant 0
10
20 30 40 Percent of Respondents
50
15
Decentralizing Decision Making What are some of the features of organizational and structural change taking place in American manufacturing? In particular, how is the locus of decision making being altered? The executives generally supported the proposition that decision making is more decentralized today. Responding to the statement, “Compared to five years ago, my company has significantly decentralized decision making,” 40 percent agreed somewhat, another eight percent strongly agreed, but one-sixth disagreed somewhat. Fence-sitters made up a third of the respondents. Other survey questions strengthen the case for the proposition that decision making is becoming more decentralized. One provocative survey statement read, “‘Empowerment’ is just a buzzword. Except for minor decisions, management should call the shots.” This question received 85 percent disagreement from the manufacturing executives (see Figure 5). The chairman of the executive committee at the large chemical firm had interesting insights on empowerment. He acknowledged: I think in America we still have a division in our minds between the factory floor and the “thinkers” in the offices. I firmly believe that, over time, as socalled empowerment becomes the way of life, we will see dramatic changes in, or elimination of, work rules as now imposed by unions and we will move to
Figure 5 Is Empowerment Just a Buzzword? Somewhat Agree
Suruey Statenwnt: “‘Empowerment’ is just a buzzword. Except for minor decisions, management should call the shots.”
16
the all-salaried work force. It’s wrong to say empowerment is a lot of malarkey; it does work. Flattening the Organization Organizational flattening is another significant structural change taking place at U.S. manufacturing firms. Manufacturers are removing layers from their hierarchies. Although the objectives of these changes are often presumed merely to be costcutting, an alternative explanation is that removing layers facilitates decentralized decision making or empowerment. The traditional explanation can be supported by the Wyatt Company’s 1993 study, Best Practices in Corporate Restructuring. In that study, 90 percent of companies surveyed said cost reduction was a goal of restructuring and only 57 percent said that improving decision making was a key goal. However, the present study provides evidence that decentralization of decision making may be the primary goal of restructuring. The high-level manufacturing managers interviewed in the present study were asked whether delayering was a significant event in their organizations during the past five years. The executives who agreed that their firm had “greatly reduced the number of layers in its organizational hierarchy” far outnumbered the ones who disagreed. But what are the objectives behind these transformations? Two additional questions were posed to explore this issue. Manufacturing executives were quite divided in their responses to the statement that layers were removed primarily to cut costs-41 percent agreed and 27 percent disagreed (see Figure 6). Though the word “primarily” was italicized to draw attention to it in the statement, the response to the companion question makes it clear that this word was not particularly emphasized in the minds of the survey takers. When asked whether delayering was done primarily to push decision making down the hierarchy, 59 percent agreed while only six percent disagreed. If the two explanations were viewed as mutually exclusive, one or the other of the two statements should have had less support. As it stands, survey results show stronger support for the proposition that removing layers is a structural change that facilitates decentralized decision making. Fewer executives took the view that delayering is purely a cost-cutting mechanism. Motivations for Decentralization and Empowerment
I
Interview responses on the delayering issue were similarly mixed, with the weight of the comments on the side of empowerment explanations. Inter-
Figure 6 Flatter Hierarchies: Cost Cutting or Empowerment?
Strongly Agree
Somewhat Agree
Neither Agree nor Disagree
sunreystatemnts: I
I
I
I
tiyers have been removed from our management structure primarily as a cost-cutting measure.
Somewhat Disagree
I
Strongly Disagree
0%
5%
10%
lj%
20%
25%
I’
30%
35%
40%
estingly, other possible factors surfaced from the interviews. The CEO of a mid-sized ($460 million annual salex) industrial products and services conglomerate was strongly in the “decentralized decision making” camp. He commented:
more decentralized. We have fewer layers of management than before. I think the operating units are the most important; the rest of the company creates the formal and psychological structure where the operating companies must thrive.
When I came to [the firm] in 1983, in some cases there were 12 layers of management; in most cases, probably about eight or nine. We forced each of the operating companies to get rid of all of l.hese intermediate layers; sometimes one boss just managed another boss. Spans of control are now anywhere from six to a dozen people. I think flattening the organizations and decentralizing has made a tremendous difference in terms of our ability to respond to changes in market conditions. People down the line know that it is I heir job to do the responding.
The discussion of organizational change offered thus far has been in somewhat global, or macro, termsghanges in the locus of decision making or realignments to meet customer needs. At some point, however, the organizational structure must be considered in human terms.
The U.S. CEO of the large foreign pharmaceutical and chemical company also saw decentralization and flatter structures as going hand-inham:. Comparing his company’s current organization to its structure in the 1950s or 1960s, he said: Basic economic decisions are still centralized, but the way it actually operates is
How .bnerican
Manufacturers
are Facing the Global
Marketplace
THE HUMAN
SIDE OF CHANGE
A
11 firms are made up of individuals whose actions must be coordinated to further company objectives. Several questions on the CSAB survey and in the interviews were directed at changes in the use of human resources. Survey questions were designed particularly to determine whether employees are becoming relatively more valuable in gaining a competitive advantage. If executives believe that human capital is increasing in importance, what actions are companies taking to better utilize these assets? Admittedly, executives who believe their firms have always valued human resources highly might respond in a noncommittal, or even nega-
17
these skills are readily transferable to other jobs” (see Figure 7). If human resources are seen as being even more Somewhat important to a firm’s success Disagree Neither Agree than in the past, and if (P/n\ Neither Agree training is also critical, then Nor Disagree it seems logical that compa(2%) nies would want to hold on to valuable personnel. To test this assumption, the executives were asked their level of agreement with the statement, “Compared to five years ago, it is more critical to reduce turnover of experienced personnel.” Such a statement is somewhat biased toward a neuHuman resources are relatively more valua ble tral or negative response. If in gaining a competitive advantage. they have viewed turnover Companies must invest in work training to be a critical problem in even if skills taught are readily transferable. the past, executives are less likely to agree with the statement that it is now . . more critical. Nearly three-quarters of the respontive, way to a statement about them becoming dents agreed that it has become increasingly more valuable. However, the survey responses important to reduce employee turnover; less than were very positive. There was overwhelming 10 percent disagreed. support (88 percent agreement) that the people In short, the organizational changes occurring who make up an organization ultimately provide in American manufacturing have a curious dithe firm’s competitive edge (see Figure 7). chotomous nature. On the one hand, firms are Not all of the executives interviewed agreed downsizing and eliminating middle management with the proposition that human resources are jobs. At the same time, the human component of gaining increased attention. The executive vice these firms is receiving increased attention. president of international operations at the very large consumer and industrial products company hat types of changes in strategies and primarily objected to the premise that there is a structures might we anticipate in the significant change in focus at his firm. He offered next five years? Should we exDect an the following viewpoint: evolution or a revolution in manufacturing organizations? The Dynamic American Firm research Even when I joined the company 37 project uncovered a great deal of information years ago, they said, “People are our about developments during the past five to ten most important resource.” We have alyears in organizational strategies and structures at ways had that attitude and have encourU.S. manufacturing firms. The driving force beaged people to be innovative. I think hind the pivotal shift toward decentralized decithat perhaps the change has been that sion making (empowerment) and customer satiswe realize the importance of retraining faction clearly has been increased competitionand keeping skills current. Being able to global competition, that is. manage change and deal with change is Furthermore, improved telecommunications more important in the human resource and computer technology have expanded the set area than it was 20 years ago. of possible organizational strategies and structures. In many instances, economies of scale have The insight lodged in these few words was been reduced because of more flexible producreinforced by the survey. Nearly all respondents tion technologies, thereby rendering manufacturagreed that “human resources will require coning facilities more mobile and better suited to tinual upgrading of their skills to keep pace with make products for varied consumer tastes. Ameriforeign competitors.” Likewise, there was no can producers have responded by tailoring their disagreement with the statement, “Companies strategies for meeting global competition to the must make investments in worker training even if
Figure 7 Human Resources Key to Competitiveness
W
18
1
Business
Horizons
/July-August
19%
political, economic, and cultural realities of specific markets. Another important finding from this research is that manufacturing executives have become more aware of the importance of human resources to the success of the firm. They reject the notion that “empowerment” is just a buzzword. Tholugh they have massively reduced the ranks of their middle managers, they wish to reduce employee turnover and make investments in improxing the skills of the survivors. By and large, the executives interviewed for the project see evolutionary-not revolutionarychanges in future strategies and structures. The chairman of the executive committee at the large U.S. chemical firm said of his own company: For the future, I don’t perceive an organizational scheme that I think will work much better than what we have-at least not in the next five to ten years. I think we have a reasonable balance between centralization and decentralization, between organizing and letting our businesses that compete in given fields compete without being burdened with the overhang of others that don’t compete in those fields. But there still has to be a central tie together to it and a semblance of a corporation. The U.S. CEO of the foreign pharmaceutical and chemical firm likewise foresees incremental change. His crystal ball included the following: Operations will be leaner, no doubt about it. There will be greater focus on like things, and we will unscramble unlike things, as the general rule. Managers will need to be more flexible. They can be very focused, but at :he same time must be able to be used in different settings if new opportunities develop. We are entering an era of “industrial pluralism.” The manager of the future has to be sensitive to working in groups and yet motivating the individual, _md being very focused by product and ,culture and yet being very international. I think that the structures themselves will have to be very simple, very direct. I l:hink the subtlety will be in the educa-ion of the individuals rather than struc‘:ures. The CEO of the international food processing joint venture emphasized the need to be able to adapt rapidly. In his mind, financial controls must be maintained to place a constraint on the activities of any organization. He suggested: How American
i%mufacturers
are Facing the C?bbal Marketplace
One needs a less bureaucratic management structure and yet one needs some very substantial control as one spreads out around the world. I think one of the challenges for organizations is to set in place the appropriate financial controls and yet, at the same time, provide a sufficient strategic vision so that operating managers can respond to this rapidly changing world. Today you must establish a more adaptive kind of organization-a project management type-that can keep changing itself. American producers are building on their experiences with teams to analyze internal processes, identify opportunities for streamlining operations to deliver more value to the customer, and implement the needed (but not necessarily welcome) changes. A common result is that these companies are reorganizing along customer lines; as customers change, so will the organization. American producers are optimistic that they are improving their abilities to compete. Ninety percent of the executives surveyed in this research believe they are doing a better job of meeting, or beating, the competition than they were just five years ago. Nearly all believe they have improved quality significantly during this time. Three-quarters of the executives believe they have greatly decreased product cycle times. The only thing certain about the future for American manufacturers, however, is that more change is inevitable. In the words of one CEO, “It’s an intense world. The process [of competing] requires constant attention.” 0 References Best Practices in Corporate Restructuring Wyatt Company, 1993).
(Chicago: The
Harvey S. James, Jr. and Murray Weidenbaum, When Businesses Cross International Borders: Strategic Alliances and 7beir Alternatives (Westport, CT: Praeger Publishers, 1993). Neil Templin and Jeff Cole, “Working Together: Manufacturers Use Suppliers to Help Them Develop New Products,” Wall Street Journal, December 19, 1994, p, Al. Grant Thornton Survey of American Annual Report (New York, 1993).
Manufacturers
Kenneth W. Chilton is the director of the Center for the Study of American Business at Washington University in St. Louis, Missouri.
19